Canada will relax rules on foreign investment for the U.S., Mexico and 12 other countries as a result of its free trade pact with the European Union.

Canada announced last week it will raise the threshold for reviewing foreign investment from EU countries to $1.5-billion from $344-million, as part of its trade agreement with the region. Canada will similarly boost the review limit for non-EU countries with which it has signed trade pacts, Prime Minister Stephen Harper said.

Energy giants such as Centrica PLC, BG Group PLC, BP PLC, half-British Royal Dutch Shell PLC, engineering and consulting company AMEC, emergency response provider Northcott Global Solutions Ltd. are all growing their Western Canadian operations, encouraged by the British government, the recently announced Canada-EU free trade deal and perception that the Canadian government welcomes their business.

The latest big move comes from Centrica, the U.K. energy utility that on Sept. 26 closed a deal with partner Qatar Petroleum International to acquire from Suncor Energy Inc. $1-billion in conventional gas assets in Western Canada. Wes Morningstar, head of Centrica’s Western Canadian operation, said more acquisitions could be on the way.

“Being long-term investors, we want to invest when the commodity cycle is near its low, and that is what we think we have today,” said Morningstar, senior vice-president, Centrica Western Canada. “As time progresses, and as the natural gas prices come back, we are going to be well-situated with this asset. Having said that, we have a model that can stand on its own and generate the rates of return that we require at Centrica with current gas prices.”

The acquisition boosted Centrica’s production in Western Canada to 65,000 barrels of oil equivalent a day, or 400 million cubic feet a day of natural gas, representing a five-fold increase in production in the past seven years. About 90% of Centrica’s Western Canadian production is natural gas. Staff has grown to more than 550, including 214 hires from Suncor.

“Centrica’s decision is another indication that there was a market here for a stronger British footprint,” said Tony Kay, the British consul general in Calgary who is working both sides of the Atlantic to strengthen the Canada/U.K. energy link.

“There is a positive trajectory and we hope that continues … If you look at the playing field here, we have a common legal system, common language, ease of travel. Arguably, if you are a [British] company that wants to look at a new market, doing it in Western Canada is more straight forward than doing it, say, in India or China.”

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Among other British companies, BG Group is proposing the Prince Rupert LNG plant on Ridley Island on the West Coast and is working with Spectra Energy Corp. to build a pipeline to move gas to the facility to liquefy natural gas for export. The company is also looking to buy natural gas resources in Western Canada.

After selling Canadian assets to pay for the Macondo well clean up in the Gulf of Mexico, BP is expanding again in Canada, focusing in the oil sands through joint ventures with Husky Energy Inc. and Devon Energy Corp. Shell has one of Canada’s dominant oil sands operations and is heading a consortium to build the LNG Canada project in Kitimat. AMEC is active in all aspects of Canada’s resource sector and Northcott opened its headquarters for the Americas in Calgary this month. The Calgary consulate is working to attract small and medium enterprises as well.

Morningstar said Centrica will funnel some of its production to the retail operation of its sister company, Direct Energy. Some will be sold in the market.

He believes gas prices will recover as demand increases with LNG exports and as producers stop producing gas at uneconomic prices.

“Do I sense that gas prices are going to $6 immediately? No. But I also don’t believe that people are going to pump capital into unconventional gas at these very low gas prices, whether it’s in the Marcellus or in Western Canada,” he said.

Centrica and Qatar Petroleum, the Middle Eastern state’s oil company, are looking for more investment opportunities in Western Canada. “Certainly we are partners with the Qatari, 60/40, on the Suncor deal, and I don’t think they are here for one deal,” Morningstar said. “Between the two of us and the partnership, we’d like to do more deals as we go forward.”

Some in the investment industry claim that Canada, by introducing last December tougher rules for investment by state-owned enterprises (SOEs) in the oil sands and by increasing scrutiny of other transactions, is fuelling uncertainty and discouraging deal making.

Morningstar said his company’s deal did not encounter difficulties.

“The process that we went through was really transparent and quite forthright,” he said. “And we did have some delays in the process, but we looked at them as being more about the summer, a cabinet shuffle, and a lot going on in the Industry Canada portfolio at that point.”

Joe Oliver, Canada’s natural resources minister, said he solicited feedback on the new rules during his recent trip to China and Korea.

“Nobody said to me that the SOE rules were dampening enthusiasm for investing in Canada,” he said. “From the [Chinese] president down, they have a keen interest in Canada, and its resources and the investment opportunities. Of that there is no doubt.”

He said there were suggestions other factors are at play. They include that the Chinese and others are pausing while integrating investments already made in Western Canada, that decline in growth in the Chinese economy is affecting its ability to invest abroad and that Canada is being impacted by a decline in resource investing globally.

To be sure, Asia has been Canada’s first and obvious pick to diversify its energy trade away from the U.S. But the deep pockets and lower-cost of capital of Asian SOEs discouraged other investors.

It’s a good thing for Canada’s energy diversification agenda that other investors are stepping back in. In the case of the British, they are a tried-and-true alternative.

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